Updated: Aug 12, 2022
In a joint letter dated April 28, the American Bankers Association and dozens of state bankers associations wrote Senate leadership asking for support for legislation that would protect cannabis banking services. The following day, the Credit Union National Association (CUNA) wrote its own letter to Senate leadership, making a similar request.
This one-two punch from a number of banking powerhouses is just the latest salvo in a very long war over cannabis banking. Under existing federal cannabis regulations, financial institutions that work with cannabis businesses operating legally under state law can face criminal prosecution for aiding and abetting a federal crime or for money laundering. The issue extends far beyond just offering banking to legal cannabis businesses; financial institutions could also run afoul of federal law by providing banking services to the accountants, landlords, law firms, and other service providers that cannabis dispensaries work with.
Because of legal risks associated with cannabis-friendly banking, large institutions have shied away from working with the entire industry, while some credit unions and community banks have seen the opportunities and are stepping up to offer cannabis banking solutions.
A Legislative Fix
In the letter from CUNA, President & CEO Jim Nussle argues that laws in states where THC cannabis has been legalized often come in conflict with federal law. He therefore supports language passed by the House for the COMPETES Act of 2021, which included H.R. 1996, the Secure and Fair Enforcement (SAFE) Banking Act of 2021. This new legislation would allow credit unions to serve their members’ needs in states where cannabis is legal.
More broadly, the SAFE Banking Act would mean that depository institutions cannot be penalized by federal regulators for providing banking services to a legitimate THC cannabis business. Among current penalties is terminating or limiting the deposit insurance of a financial institution that works with a legitimate cannabis business.
The SAFE Banking Act also states that proceeds from working with legitimate cannabis businesses cannot be considered “unlawful activity.” https://www.congress.gov/bill/117th-congress/senate-bill/910
CUNA points out that failing to offer traditional depository and lending services to legitimate cannabis businesses “creates a significant public safety issue.” Nussle cites a 2015 analysis that found that when unbanked, one in every two cannabis dispensaries was robbed or burglarized. These robbers walked away with anywhere from $20,000 to $50,000 in a single theft.
Because big banks and credit card companies have shunned cannabis businesses, these businesses often deal exclusively in cash. This makes it very challenging to buy inventory and pay employees. https://www.bloomberg.com/news/newsletters/2022-01-18/marijuana-banking-is-moving-forward-despite-federal-uncertainty
Meanwhile, the letter from the ABA and state bankers associations underscores the problems that arise from cannabis businesses dealing solely in cash: “The increased transparency that would come from processing transactions through bank accounts instead of in cash would ensure that regulators and law enforcement have the necessary tools to identify bad actors and remove them from the marketplace. The legislation would also enhance tax collection in the states where cannabis is now legal.” https://www.aba.com/advocacy/policy-analysis/aba-and-sba-letter-to-the-senate-support-safe-banking-in-america-competes-act
Odds of Passage?
Now is hardly the first time that the SAFE Banking Act has been put to a Congressional vote. Similar legislation has passed in the U.S. House of Representatives six times, most recently in February 2022. Before it became an amendment to the COMPETES Act, the SAFE Banking Act was a standalone bill. That bill passed the House in April 2021 with a 321-to-101 majority, with 106 Republicans supporting it. https://perlmutter.house.gov/safe-banking-act/
The history of the SAFE Banking Act dates back nearly a decade to when Ed Perlmutter (D-CO) introduced a version of the SAFE Banking Act in 2013. Some proponents of cannabis banking are concerned that Perlmutter’s decision not to seek reelection could be a blow to the future of cannabis-banking legislation. https://www.bloomberg.com/news/newsletters/2022-01-18/marijuana-banking-is-moving-forward-despite-federal-uncertainty
Passage for cannabis-friendly banking legislation has historically been derailed in the Senate. A recent Forbes article points out that Senate roadblocks to passage generally come from progressive lawmakers, who would prefer more comprehensive legalization efforts, and some conservative lawmakers who have long standing concerns about the industry. https://www.forbes.com/sites/lewiskoski/2021/12/03/the-safe-banking-act-what-is-it-and-where-does-it-stand/?sh=59129a742baf
Stay tuned for more coverage on cannabis banking legislation going forward!